{"title":"Debt, deficits and interest rates","authors":"Christopher D. Cotton","doi":"10.1111/ecca.12521","DOIUrl":null,"url":null,"abstract":"<p>This paper identifies how a rise in the deficit/debt impacts interest rates by looking at the high-frequency response of interest rates to fiscal surprises. The fiscal surprises are the unexpected components of deficit releases and the changes in official forecasts by the Congressional Budget Office and by the Office of Management and Budget. The paper estimates that a rise in the deficit-to-GDP ratio of 1 percentage point raises the 10-year nominal interest rate by 8.1 basis points. The response is similar quantitatively for other Treasury maturities and for corporate debt interest rates. The paper also investigates which theoretical channel drives this relationship, and whether surprises affect interest rate expectations or the term premium. These results are used to estimate how recent spending may have affected interest rates.</p>","PeriodicalId":48040,"journal":{"name":"Economica","volume":"91 363","pages":"911-943"},"PeriodicalIF":1.6000,"publicationDate":"2024-03-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Economica","FirstCategoryId":"96","ListUrlMain":"https://onlinelibrary.wiley.com/doi/10.1111/ecca.12521","RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q2","JCRName":"ECONOMICS","Score":null,"Total":0}
引用次数: 0
Abstract
This paper identifies how a rise in the deficit/debt impacts interest rates by looking at the high-frequency response of interest rates to fiscal surprises. The fiscal surprises are the unexpected components of deficit releases and the changes in official forecasts by the Congressional Budget Office and by the Office of Management and Budget. The paper estimates that a rise in the deficit-to-GDP ratio of 1 percentage point raises the 10-year nominal interest rate by 8.1 basis points. The response is similar quantitatively for other Treasury maturities and for corporate debt interest rates. The paper also investigates which theoretical channel drives this relationship, and whether surprises affect interest rate expectations or the term premium. These results are used to estimate how recent spending may have affected interest rates.
期刊介绍:
Economica is an international journal devoted to research in all branches of economics. Theoretical and empirical articles are welcome from all parts of the international research community. Economica is a leading economics journal, appearing high in the published citation rankings. In addition to the main papers which make up each issue, there is an extensive review section, covering a wide range of recently published titles at all levels.